Global Liquidity in Focus: Challenges and Policy Shifts for 2025

China's  Liquidity Moves:
The People's Bank of China (PBoC) injected RMB 580.2 billion last week via reverse repo operations at a fixed rate of 1.50%.
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While this provides short-term relief, it follows aggressive prior liquidity drains.
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With global liquidity deteriorating and the Chinese  economy under pressure, these actions hint at potential stronger measures in 2025, especially if the DXY weakens and the FED eases policies.

US Liquidity Moves:
The Treasury General Account (TGA) declined by $104.165 billion last week.
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As EOY financial conditions tighten, due to institutional balance sheet adjustments, this TGA drawdown offers short-term relief to funding markets.
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However, with QT and elevated SOFR rates still exerting pressure, the broader liquidity environment remains tight, making sustained TGA drawdowns critical for any meaningful liquidity improvement in early 2025.
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As highlighted in our recent post, it is necessary for the FED to start QE measures to address the debt problem in the US.

DXY and Yields:
The DXY reached a 2-year high as demand for the USD surges amid tariff speculations.
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Meanwhile, bond yields continue rising despite rate cuts since September, signaling inflationary concerns for 2025.
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Both trends pose significant challenges to global liquidity conditions.

Global Liquidity Trends:
Our Global Liquidity Index declined by $0.52t, a -0.4% drop this week.
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Liquidity momentum remains weak, with the 3-month rate of change still below the 12-month rate of change.

Overall, the 2025 presents formidable challenges for global liquidity.
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Significant policy shifts, particularly QE from the FED, may be needed to address rising debt and stabilize liquidity conditions.

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